Closing the Book on Research That Actually Made a Difference

Who says academics can’t make things happen? The five years since a couple of finance professors began circulating their suspicions that Nasdaq makers were profiting from maintaining artificially wide spreads on customers’ trades have seen no less than a restructuring of the Nasdaq, which is spending $100 million on improved surveillance, a record $1.03 billion settlement of a class-action investor lawsuit with dealers alleged to have overcharged them and $26.3 million in SEC fines against 28 securities firms.p. The fines, announced last week, end a saga inspired by a paper written by William Christie, of Vanderbilt University, and Paul Schultz, now of the University of Notre Dame, who was at Ohio State when the paper was published in the Journal of Finance in 1994. Despite widespread acknowledgment that the paper, “Why do Nasdaq Market Makers Avoid Odd-Eighth Quotes?” spurred the suits as well as government probes that resulted in sweeping changes, the professors were scarcely mentioned in last week’s coverage.p. Still, Schultz thinks he and Christie have “definitely been vindicated.” He notes that when the research was first publicized, “person after person said we were nuts.” He adds that the Nasdaq “is a much better place to trade than it used to be,” and deserves some credit for making “huge reforms.”p. Christie agrees. “Most things we write nobody ever reads,” he says, adding that “to have had an impact is really neat.” Although he says his most popular lecture is on the Nasdaq, he concedes that the students “get a lot more excited when they see me quoted in the press.” Schultz, who is currently looking into the costs of trading corporate bonds, says that being in the limelight “helps the students realize the relevance of the research we do.” But he views the notoriety as something of a mixed blessing. Although his academic peers “do care about making changes,” they’re “not much impressed by the publicity.”